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Core business remains strong; corporate payments to become the third growth engine

  • 13 Dec 16

Edenred reported 9M FY16 results (ending 30 September) broadly in line with our estimates. The lfl revenue increased by +7% (Q3: +9.1%, Q2: +6.9%, Q1: +5.2%; our estimate: +4.5%), despite clocking a 1.9% decline in financial revenue (13.3% decline in Europe, partially offset by +7.3% growth in Latin America). Total reported revenue came in at €804m (+2.8% vs our estimate of +2.9%), on account of currency headwinds (-8.4% yoy; largely due to the depreciation of the Brazilian real and Mexican peso vs the euro), and partially offset by a 4.2% positive scope impact (primarily related to Embratec’s integration in Brazil). The take-up rate was unchanged yoy at 4.6%. Issue Volume (IV) increased by +8.9% on a lfl basis (Q3: +10.2%, Q2: +9.3%, Q1: +7.4%; our estimate: +7.2%), reflecting strong growth across all major regions. Europe was up 7.7% (Q3: +6.4%, Q2: +9.7%, Q1: +6.9%; accounts for c.48% of the group’s IV), once again driven by Central Europe (+8.5%; reflecting improving economic conditions) and France (+4.6%; due to solid gains in Ticket Restaurant solutions). Despite challenging macro-economic conditions, the LatAm region reported a strong sequential improvement (Q3: +14.3%, Q2: +8.7%, Q1: +7.5%; accounts for c.48% of the group’s IV), propelled by Hispanic LatAm (+18.4% yoy; employee benefit solution growth of 24.3%). Also, Brazil was up 4.5% on the back of strong growth in the expense management business (+15.7% yoy). Management has reiterated its FY16 guidance: IV organic growth of 8-14% (we go for the lower end of the range), EBIT to range €350-370m (vs our estimate of €351m), operating flow-through ratio to remain above 50% and FFO to grow by over 10% organically. Furthermore, a promising three-year plan (called Fast Forward) was announced at the investors’ day. The company aims to accelerate organic revenue and EBIT growth to over 7% and 9%, respectively, by adopting the following measures: 1. Acquire a controlling interest in UTA by exercising the call option to purchase an additional 17% stake (thus bringing the total to 51%). The move will increase the expense management business’s contribution to the group’s IV from 17% to 30% post consolidation. 2. Achieve double-digit organic revenue growth in expense management and mid single-digit in the employee benefits business through various initiatives. 3. Expansion in the corporate payments ecosystem (manage financial transaction flows among various companies across geographies). This encompasses the use of virtual card technology and establishing a private payment network by leveraging its authorisation platform, PrePay Solutions (70% owned JV with Mastercard). 4. Slashing the dividend pay-out ratio to at least 80% (currently >90% of recurring profit after tax) in order to augment the investment in the corporate payments business.

Organic momentum continues; FX spoils the party again

  • 03 Oct 16

Edenred reported H1 FY16 results broadly in line with our estimates. The lfl revenue increased by +6.1% (Q2 16: +6.9%, Q1 16: +5.2%; our estimate: +4.7%), despite clocking a 1.6% decline in financial revenue (15.4% decline in Europe, partially offset by +9.8% growth in Latin America). However, the reported revenue was down 2.4% (vs our estimate: +3%) to €526m, on account of currency headwinds (-10.8% yoy; largely due to the depreciation of Brazilian real and Mexican peso vs the euro), and partially offset by a +2.3% scope effect. The take-up rate declined to 4.6% during the period (-10bp yoy). Issue Volume (IV) grew by +8.4% on a lfl basis (Q2 16: +9.3%, Q1 16: +7.4%), largely driven by a sequential improvement in the European region (Q2 16: +9.7%, Q1 16: +6.9%, Q4 16: +5.4%; c.50% of total IV). Within the region, “Europe – excluding France” led the momentum (+9.9% yoy; reflecting favourable economic dynamics in Central Europe and a positive calendar effect), followed by an improved performance in France (+5.2%; driven by the Ticket Restaurant business). Despite challenging macro-economic conditions, the LatAm region clocked +8.1% growth (Q2 16: +8.7%, Q1 16: +7.5%; our estimate: +7.5%; accounts for c.45% of total IV), primarily driven by the Hispanic LatAm business (+13.8%; led by +19.1% growth in employee benefit solutions). Also, Brazil was up 4.5% on the back of strong growth in the expense management business (+16.8% yoy). The company issued a €250m Schuldschein loan (fixed + floating rate; average financing cost of 1.2% and maturity of 6.1 years) and signed an agreement in July to extend the €700m undrawn revolving credit facility by two years to July 2021. Management has reconfirmed its FY16 guidance: IV organic growth of 8-14% (lower end of the range), EBIT to range €350-370m (vs our estimate of €351m), operating flow-through ratio to remain above 50% and FFO to grow by over 10% organically.

Brazil continues to drag, European recovery fuels the growth

  • 14 May 16

Edenred reported Q1 16 results below our estimates. The total revenue increased by 5.2% on a lfl basis (vs Q4 15: +5.4% and Q3 15: +4.9%), despite clocking a 3.1% decrease in the financial revenue. However, the reported revenue was down 5.2% (vs Q4 15: -2.5%, Q3 15: -4.3% and our estimate: +2.4%) on account of currency headwinds (-12.3% yoy; mainly due to the Brazilian real and Mexican peso), and partly offset by the scope effect (+1.9%; integration of ProwebCE business in France). The take-up rate declined to 4.6% in the quarter (vs 4.7% in Q1 15). On Issue Volume (IV), Edenred posted growth of 7.4% on a lfl basis (vs Q4 15: +8.4% and Q3 15: +7.0%), on the back of better growth in Europe (Q1: +6.9% vs Q4 15: +5.4% and Q3 15: +4.1%), with France (+4.2% vs Q4 15: 3.9% and Q3 15: +3.3%) leading the momentum, driven by the Ticket Restaurant business. However, the macro-economic challenges continued in the LatAm business (Q1: +7.5% vs Q4 15: +10.9%), largely due to the sequential growth slowdown in Brazil (Q1 16: 5.3% vs Q4 15: +5.4% and Q3 15: +5.7%); on the contrary, the Expense Management continued to post robust growth (+19.2% vs Q4: +18.8%, H1 15: 27.5%). The Embratec JV in Brazil (65%-owned by Edenred and 35%-owned by Embratec’s founding shareholders) is expected to be completed in the first-half of 2016. Management expects the organic IV growth at the lower end of the medium-term target of 8-14% in FY 16.

Resilient LatAm growth alongside digitalisation benefits for France

  • 29 Jul 15

A good set of H1 numbers, particularly in the backdrop of a deteriorating economic scenario in Brazil which is a key market for Edenred (i.e. 50% of Issue Volume). - Brazil posted strong IV lfl growth (11.9%), despite some impact from rising unemployment on the Benefits business (IV lfl: 8%), primarily on the back of the robust pick-up in the Expense management business (IV lfl: 27.5%). The company continues to offset the macro blues through its digitalisation growth (now 66% at the group level) and its execution on the ground with a major partnership announced with Daimler. - Overall, IV growth was 9.5% and 9.6% on a lfl basis (vs. 1.5% and 12.3% in H1 14). While penetration growth and new solutions broadly held up (H1 15 vs H1 14: 4.6% vs 5.4% and 2.3% vs 2.5%, respectively), growth from voucher face value increases slumped to 2.5% (H1 14: 4.2%) as guided by the management earlier. Another key positive was EBIT growth of 11.5% to €165m despite a €6m FX impact, with lfl growth of 14.6% vs. 13.2% in H1 14; EBIT for the operating business increased 19.5% vs 17% in H1 14 on a lfl basis. This was primarily on the back of a 130bp improvement in the EBIT margin for LatAm to 43.8% (H1 14: 42.5%). Management confirmed its full-year guidance of 8-14% lfl growth in IV, revenue growth at a difference of 100bp to IV growth and set the EBIT target at €365-380m, incorporating a €23m FX impact given the FX rate of 3.47BRL/USD at the end of H1, i.e. 30 June 2015.